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OnMobile Call: International Shift; India Slowdown; TRAI Guidelines

Much of OnMobile Global‘s earnings conference call focused on potential of its international business, given the context of a weakening Indian market, and the double whammy delivered by TRAI’s SMS Spam and subscription confirmation regulations. However, there was almost no information on the product front, and when we spoke with OnMobile CEO Arvind Rao afterwards, he was non-committal on the launch of any data related products, focused on the smartphone market.

International Business

– Contributed 42% of the top line revenue in Q2-FY11 and 47% in month of September. The company expects that within this fiscal year, international revenues will contribute more than 50% of its top line. “Overseas business has slightly different characteristics from the Indian business in terms of margins, in terms of the commercial terms, in terms of the longevity of the contracts and in terms of the operators that we deal with at a global level.”
– Telefonica & Latin America: Launched in another country, and OnMobile now has 94% of its addressable subscriber reach. Latin America turned cashflow positive within the first year of a five-year contract. “You need to incur a lot of expenses before you launch operations in one country but once you go live we have seen that typically 12 months from the date of deployment that business is EBITDA positive.” Onmobile feels that it is in a position to grow reveneus from Latin America today at “at least 20 to 25% quarter-on-quarter.”

– Paid upfront for project: An interesting aside – the company said on the earnings conference call that it “paid a lot of money upfront” for the project, “so there was a lot of risk that we were taking on.” They’ve been able to achieve cashflow breakeven in less than one year.

– Overseas is higher margin: “We get tax preferences for overseas income and since the software for the products have largely been expensed, the contribution margin from every international rupee or dollar is materially higher than the Indian business.”

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Indian Business: Expecting topline slowdown

– The Indian business for OnMobile degrew 8% in the first half of this year. This, the company said, is a combination of multiple things: “there are factors regarding the actual value of the subscribers, the new subsribers that are coming onstream in India today are extremely low ARPU. Many of them use their cell phones only for emergency calls or they have multiple SIMS. So the quality of the subscribers adds that you read does not really translate materially into enhanced revenues. That’s one factor. The second factor as you all know is with the TRAI regulations and all that. And until 3G really ramps up and rolls out in a major manner, which we do not see for another at least one or two years with the increasing adoption of handsets and end user sophistication. So the Indian market is going through a bit of a slowdown, we believe. There will be a slowdown in the Indian market in terms of value-added services top line.”

Rao added that “We are not going to see the historical growth rates that were there in the Indian market. Actually, this is one of the reasons why in the last two years we have spent so much money and time and management effort focusing on international growth and planting the seeds so that if there is a slowdown in the Indian market, we are better positioned than anybody else to ride that slowdown through.”

– 3G & Dilithium: technology platforms for Dilithium have been deployed, so “are we positioned to capitalize on the takeoff on the 3G in India once it happens, the answer is yes. Today, are we seeing the results? The answer is no. Because on 3G, the services are still in a very early stage of ramping up.”

– Tax case settled: “The other significant development this quarter was – one sword which was hanging over the company about the VAT matter in the Karnataka state has beed adjudicated in favour of the company. The Karnatak VAT Tribunal actually has heard the matter and passed the order which is favourable to us.”

– TRAI Guidelines: Early stages on the impact of TRAI guidelines, and the company said that they don’t know how things will change, referencing the TRAI’s rollback on the 100 SMS limit, wherein they increased the limit to 200 SMS per SIM. Also “this TRAI thing is something that we have seen and anticipated in some form or the other for the last two years. From a product standpoint and from an operational standoint, we have been gearing up for a while now.” They pointed out the lowered dependency on the India market, and hence a limited exposure. Rao said that “while many people in the industry have given them alternative solutions at doing it, these alternative solutions are going to take a bit of time to implement within the telecom operators. So there may be some additional impact in the initial part but that may be reduced as we go forward in the fourth quarter and the first quarter of next year.” The impact, OnMobile expects, could be over the next four quarters, but it feels it is derisking pretty well.

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Ver Se: The company made around Rs 46.5 crores from the sale of the Ver Se 9-10% stake, and they have 4-5% left in the company. Speaking with MediaNama later, Rao declined to comment on who they have sold the stake to, citing the confidentiality of its agreements. The company plans to completely exit Ver Se.

Double Confirmation

Rao said that there are discussions in progress between the TRAI and stakeholders – VAS companies, industry associations and telecom operators. He mentioned an alternative: People can call a toll free number, then can call a number and just speak into the system and that will confirm their requirement.
He also said that the company is focusing on pull based traffic, but only mentioned “press * to copy” and press *9 , which is a user-initiated action.

A caller did point out that double confirmation will have a significant impact even if it comes in a diluted form because it adds another layer of confirmation, and another decision point.

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